CFPB Begins to Show Cards on Lending Stance

The Consumer Financial Protection Bureau (CFPB) has yet to put out any auto lending regulations or sue any auto lenders, but last week it gave the clearest picture yet of how it thinks auto lending should change.

Automotive News reported that dealers and lenders have been clamoring for such guidance in the wake of a March bulletin from the CFPB on discrimination in auto lending and subsequent disclosures by lenders that they are under investigation.

The peek behind the curtain started Nov. 12 when CFPB chief Richard Cordray testified at a Senate Banking Committee hearing and continued Thursday at a CFPB auto lending forum in Washington. According to Automotive News, the main takeaways were:

The CFPB wants to show it has found evidence of bias.

Patrice Ficklin, the agency’s fair-lending director, said Thursday statistical analysis of loan data shows that even with factors such as credit scores held constant, interest rates on the car loans financed by a lender can be 10, 20 or 30 basis points higher on average for minority buyers than for white buyers. An extra 30 basis points can translate into $216 over a five-year loan, she said, amounting to “tens of millions of dollars in overpayments each year.”

The CFPB is still investigating lenders with the Justice Department.

“The order of the day on those things is confidentiality unless or until you get to the point of taking some sort of public action,” Cordray said. Prodded by Sen. Jerry Moran, R-Kan., on the reliability of the CFPB’s statistical methods, he added: “Anything we do could ultimately be tested in court, and the court would have to have confidence in our methods.”

The CFPB’s priority is ending dealers’ discretion to set interest rates.

The agency wants to replace the “dealer reserve” model, which gives them that discretion, but says there are several ways to do it. Though the March bulletin suggested dealers could be paid with a flat fee — say, a few hundred dollars per car — the agency is open to other payment schemes. Eric Reusch, the CFPB’s program manager for auto and student loans, said Thursday that a sliding scale based on the total amount financed or a “hybrid” system that takes into account the duration of a loan, both look OK at first blush.